Btn 7-4

Your friend, Wendy Geiger, owns a small retail store that sells candies and nuts. Geiger acquires her goods from a few select vendors. She generally makes purchase orders by phone and on credit. Sales are primarily for cash. Geiger keeps her own manual accounting system using a general journal and a general ledger. At the end of each business day, she records one summary entry for cash sales. Geiger recently began offering items in creative gift packages. This has increased sales substantially,

and she is now receiving orders from corporate and other clients who order large quantities and prefer to buy on credit. As a result of increased credit transactions in both purchases and sales, keeping the accounting records has become extremely time consuming. Geiger wants to continue to maintain her own manual system and calls you for advice. Write a memo to her advising how she might modify her current manual accounting system to accommodate the expanded business activities.

Geiger is accustomed to checking her ledger by using a trial balance. Your memo should explain the advantages of what you propose and of any other verification techniques you recommend.

To: Wendy Geiger

From: Spookie

Subject: Accounting Ledgers

Dear Wendy,

Reference to the above mentioned subject, please find below my recommendations regarding the verification techniques.

I recommend the use of special journals and subsidiary ledgers as journalizing in labeled columns and the posting of column totals would help saving a lot of time.

Subsidiary ledgers would also ensure that timely information regarding customer and creditor balances.

A special journal is used to record and post transactions of similar type and those include:

1) Sales Journal - for recording credit sales

2) Cash Receipts Journal - for recording cash receipts

3) Purchases Journal - for recording credit purchases

4) Cash Disbursement Journal - for recording cash payments

5) General Journal - for transactions not in special journals

A subsidiary ledger contains detailed information on specific accounts in the general ledger. Information systems often include several subsidiary ledgers. Two of the most important are:

1) Accounts receivable ledger--stores transaction data of individual customers

2) Accounts payable ledger--stores transaction data of individual suppliers

I